Growth in China, India may slow as rates rise: IMF

Growth in S'pore, HK, S. Korea and Taiwan could slow too as export demand eases


THE economies of China and India may cool as interest rates rise in the world's two fastest-growing major economies, the International Monetary Fund (IMF) said.

Expansion in the newly industrialised economies of South Korea, Taiwan, Hong Kong and Singapore will probably also slow as easing growth in the United States dampens demand for exports, the Washington-based lender said in its semi-annual World Economic Outlook report released on Wednesday.

Asia's emerging markets will expand by 8.4 per cent this year, easing from 8.9 per cent in 2006, and further slow to 8 per cent next year, the IMF said.

The World Bank and the Asian Development Bank in the past two weeks also predicted that growth in the region will cool.

'This reflects some moderation in growth in China and India in response to policy tightening, and slower growth among the newly industrialised economies as global demand for exports softens,' the IMF said.

'A sharper-than-anticipated slowdown in the demand for Asian exports, in general, and electronic goods, in particular, could undercut growth.'

Japan's economy, the world's second biggest, will probably expand by 2.3 per cent this year, up from a September forecast of 2.1 per cent, as a pickup in consumer spending offsets slower exports, the IMF said.

It cut its forecast for US growth this year to 2.2 per cent from a September estimate of 2.9 per cent. The world's largest economy expanded by 3.3 per cent last year. Growth will accelerate to 2.8 per cent next year, helped by a 'robust' labour market and strong corporate profits.

'They aren't forecasting a very big decline for the emerging economies,' said Mr Huw McKay, senior international economist at Westpac Banking in Sydney.

'They may have undershot the US and that explains a lot of the decline in their forecast for global growth.'

The fund predicts global growth of 4.9 per cent this year, the same as it forecast in September, following a 5.4 per cent expansion in 2006.

World trade volume may rise by 7 per cent this year, a 0.7 percentage point reduction from its September forecast, and slowing from 9.2 per cent in 2006, the IMF said.

It expects China to grow by 10 per cent this year, unchanged from its forecast in September. The economy may slow to 9.5 per cent next year, the report said. Growth was 10.7 per cent last year.

India will expand by 8.4 per cent this year, the IMF said, up from its 7.3 per cent forecast made in September. The economy grew 9.2 per cent in 2006 and will slow to 7.8 per cent next year, it added.

It said Asia may expand faster than it now predicts.

There is a 'possibility the slowdown projected in China may not materialise if the effect of monetary tightening on investment proves temporary', it said. 'In India, the manufacturing sector and investment could gather added momentum in the near term.'

China raised rates to the highest in almost eight years and increased the amount of money lenders must set aside as reserves six times in less than a year to slow investment and loans.